A VA loan can remove one of the biggest barriers to homeownership: a down payment. But it does not mean every upfront cost disappears. A careful VA funding fee comparison helps military-connected buyers see what the fee may add to their loan, when it may be waived, and whether paying it upfront or financing it makes better sense for their household.
For many of our nation’s heroes, the funding fee is manageable. For others, especially buyers with a VA disability exemption, it may be zero. The key is not to guess based on a friend’s loan or an online advertisement. Your fee depends on your service status, prior use of the VA loan benefit, down payment, and exemption eligibility.
What the VA Funding Fee Pays For
The VA funding fee is a one-time charge attached to most VA-backed purchase and refinance loans. It helps support the VA home loan program so eligible borrowers can continue to access financing with favorable terms and, in many cases, no required down payment or monthly mortgage insurance.
The fee is not the same as interest, homeowners insurance, property taxes, or standard lender closing costs. It is a separate charge calculated as a percentage of the loan amount. Most buyers either finance it into the mortgage or pay it at closing. A seller may also be able to cover it as part of negotiated seller concessions, subject to VA rules and the terms of the purchase contract.
That distinction matters. Financing the fee lowers the cash you need at the closing table, but it raises your loan balance and the interest paid over time. Paying it upfront requires more cash now, yet can reduce the long-term cost of the mortgage.
VA Funding Fee Comparison by Loan Type
The following rates are commonly used for VA purchase loans and reflect the standard structure in place for qualifying borrowers. Loan rules and fee schedules can change, so your lender should confirm the current rate before you make final decisions.
| Loan situation | Down payment | Funding fee rate | |—|—:|—:| | First VA purchase loan use | Less than 5% | 2.15% | | First VA purchase loan use | 5% to less than 10% | 1.50% | | First VA purchase loan use | 10% or more | 1.25% | | Subsequent VA purchase loan use | Less than 5% | 3.30% | | Subsequent VA purchase loan use | 5% to less than 10% | 1.50% | | Subsequent VA purchase loan use | 10% or more | 1.25% | | Interest Rate Reduction Refinance Loan, or IRRRL | Any | 0.50% |
A first-time VA borrower purchasing a $350,000 home with no down payment could have a funding fee of $7,525 at the 2.15% rate. If financed, the starting loan balance becomes $357,525 before other financed items, if any.
Now compare that with a buyer making a 10% down payment. On a $350,000 purchase, the base loan amount is $315,000. At a 1.25% funding fee, the charge would be $3,937.50. That buyer needs substantially more cash for the down payment, but the funding fee and mortgage balance are lower.
There is no universal right choice. A larger down payment can reduce the fee, but it should not leave your family without emergency reserves for repairs, moving expenses, or the realities of a new duty station. A trusted lender can show both scenarios side by side.
First Use Versus Subsequent Use
“First use” does not simply mean your first home purchase. It generally refers to whether you have used your VA home loan benefit before. A borrower who previously used a VA loan, even years ago, may fall into the subsequent-use category unless a specific VA determination says otherwise.
This is one reason pre-approval matters. Your lender can review your certificate of eligibility and loan history early, rather than allowing an unexpected funding fee to surface just before closing.
Purchase Loans, Cash-Out Refinances, and IRRRLs
A streamlined VA refinance, known as an IRRRL, carries a lower standard funding fee because it is designed to refinance an existing VA loan, often for a lower rate or more stable payment structure. A cash-out refinance is different. It may use the purchase-loan funding fee schedule based on whether it is your first or subsequent use.
Do not assume a refinance will always save money simply because the monthly payment falls. Compare the rate, closing costs, funding fee, how long you plan to keep the loan, and whether the fee will be financed.
Who Is Exempt From the VA Funding Fee?
Some borrowers are exempt from paying the VA funding fee. This exemption can create meaningful savings and should be verified as early as possible.
In general, exemption may apply to veterans receiving VA compensation for a service-connected disability, veterans entitled to receive compensation but receiving retirement or active-duty pay instead, and eligible surviving spouses of veterans who died in service or from a service-connected disability. Active-duty service members who have received the Purple Heart may also qualify under specific conditions.
Your certificate of eligibility may show an exemption status. If it does not, but you believe you qualify, speak with your lender and the VA before closing. An exemption is based on VA eligibility, not on a lender’s preference or a real estate agent’s opinion.
If a borrower pays a funding fee and is later awarded an effective disability compensation date that qualifies them for exemption, a refund may be possible in certain situations. That is another reason to keep closing documents and communicate promptly with the lender and VA.
How the Funding Fee Compares With Other Loan Costs
A VA funding fee comparison is most useful when it includes the full cost of financing, not just one line item. Conventional loans often require private mortgage insurance when a buyer puts down less than 20%. FHA loans generally include both an upfront mortgage insurance premium and ongoing monthly mortgage insurance. VA loans do not require monthly mortgage insurance.
That can make a VA loan especially attractive for a buyer with limited cash for a down payment. Still, the funding fee can be significant for a non-exempt borrower, particularly on a subsequent-use loan with little or no down payment.
For example, a conventional loan with a lower upfront charge may carry monthly mortgage insurance for years. A VA loan may have a larger one-time fee but no monthly mortgage insurance. The better option depends on your credit profile, available cash, interest rate offers, anticipated time in the home, and VA eligibility.
Reducing Out-of-Pocket Costs at Closing
The funding fee is only one part of a homebuyer’s closing picture. Appraisal charges, lender fees, title expenses, prepaid taxes, insurance, and moving costs can add up quickly. VA rules limit some charges veterans may pay, and a knowledgeable military-focused lender and agent team can help identify costs that may be negotiated.
Seller concessions can be especially valuable. Depending on the transaction, a seller may agree to pay permitted closing costs or concessions, including the funding fee, within VA limits. This is not automatic. It depends on the local market, the home’s value, the offer terms, and the seller’s willingness to negotiate.
Military Housing Assistance Fund helps eligible military-connected buyers pursue lower out-of-pocket closing expenses through a no-cost program, trained real estate and lending professionals, seller-concession negotiation, and eligible closing-cost reimbursement after a completed purchase. Assistance amounts and covered expenses are transaction-specific, and buyers should understand what remains their responsibility before moving forward. Program services are not available in Alaska, Ohio, or New York.
Questions to Ask Before You Choose a VA Loan Structure
Before making an offer, ask your lender whether you are exempt from the funding fee, whether the loan is considered first or subsequent use, and what the exact dollar amount will be. Ask for two payment estimates: one with the fee financed and one with it paid at closing.
Also ask your real estate agent whether seller concessions are realistic in the neighborhood and price range you are considering. In a competitive market, requesting concessions can affect the strength of an offer. In a slower market, it may be a practical way to preserve savings for the first months of ownership.
Finally, do not measure affordability by the mortgage payment alone. Keep room in the budget for maintenance, utilities, commuting, furnishings, and the unexpected costs that come with settling into a home.
Your VA benefit was earned through service. Take the time to understand every cost attached to it, then build a purchase plan that protects both your path to homeownership and your family’s financial footing after you receive the keys.